Industrials

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

The global steel industry is too busy battling a deluge of excess supply from China to notice an emerging enemy: India.

The government in New Delhi may post minimum import prices for steel and steel products later this week, according to local media reports. That measure would come on top of so-called safeguard duties of 20 percent, which Indian producers including Uttam Galva say are failing to protect them from a 34 percent surge in imports in the eight months through November. 

Swamped by Imports
India's growing steel demand is being met by overseas suppliers as local industry stagnates
Source: India Joint Plant Committee
Note: % Change from Year Earlier Between April-November 2015

Indian import barriers matter: The world's third-biggest steel market after China and the U.S. is the only one among the top six where demand is forecast to rise both this year and the next.

The longer-term outlook is better still. With Japan close to signing a $14.7 billion deal for India's first high-speed rail network, there's hope that even if India is not quite the next China, its infrastructure program will be a significant source of demand for the likes of ArcelorMittal, ThyssenKrupp, Nippon Steel & Sumitomo Metal, and Baoshan Iron & Steel:  

Can India Be the Next China?
Railway track production shows opportunity to expand steel demand in Indian infrastructure
Source: World Steel Association

The safeguard duties weren't nearly as onerous as the 236 percent levy announced by the U.S. Department of Commerce, though India's minimum import prices might apply to a broader range of products than similar punitive action by the European Union, which was directed against steel destined for power transformers.

Protectionism has downsides. For one thing, by trying to save its steelmakers, India risks making the metal too expensive for consumer goods companies like Maruti Suzuki and Whirlpool of India. That could jeopardize the government's widely advertised "Make in India" program. 

Risky, but hard to resist: China said today it will cut some export tariffs next year in an effort to curb mounting domestic oversupply. That could mean more Chinese metal coming India's way. Besides, the average iron and steel company in India has almost 21 times as much debt as it earns before interest, taxes, depreciation and amortization. That's higher than the global average of about 16.

For every rupee of debt owed by Indian metals companies that qualifies for a ratings upgrade, 100 rupees in loans and bonds is getting downgraded, according to Crisil, a local unit of Standard & Poor's. That's an alarming situation for India's mostly state-owned banking industry, which needs $35 billion in fresh capital between now and 2019 to make good on past bad loans and to finance future growth.

Letting the domestic steel industry muddle through this crisis looks like a more attractive option than allowing it to go belly up. As long as that's the most important consideration, the global steel industry's future friend will remain its reluctant foe.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net